Question

‘It is reasonable for competition policy to be tougher on horizontal mergers than on vertical mergers because the effects of increasing concentration are more ambiguous for vertical mergers.’ Do you agree or disagree with this quote? Explain your answer.

Answer 1

The horizontal merger is considered as more inimical to the competitive environment in the economy relative to the vertical merger.

A horizontal merger implies the merger of competing firms. thus, it reduces the level of competition in the market. Government always takes strong actions against such mergers that drive down the level of competition in the market. The number of participants comes down in the market, thus market might inch towards the monopoly tendencies.

Furthermore, the vertical merger is buyer-seller type of relationship. Here either inputs providers merger or distribution mergers take place. Thus, cost of production would decline after such merger. it causes minimum damage to competition level. It might affect the competition level by restricting the availability of inputs to the competitors.